Independent Power Projects in Sub-Saharan Africa: Investment trends and policy lessons

Abstract

Sub-Saharan Africa is in urgent need of more power. Private sector investment is key to achieving this. Along with Chinese-funded projects, Independent Power Projects (IPP) represent the fastest growing sources of power investment in Sub-Saharan Africa. IPP investment flows show little concern for electricity market structures, but are more likely to gravitate to countries with strong planning, procurement and contracting capacity, as well as good regulatory quality. Data from the continent also shows a variety of ownership and financing structures for IPPs, but generally development financing institutions (DFIs) play an important part in mitigating risk and bringing in private financiers. We also see renewable energy breaking through on the continent - both in scale and price. This breakthrough is in part being facilitated by competitive procurement or auctions, which deliver lower prices and increased transparency when compared with renewable energy feed-in tariffs or directly negotiated contracts. These developments have important policy implications, highlighting the need for: dynamic, least-cost planning, linked to the timely initiation of the competitive procurement of new generation capacity; the building of effective regulatory capacity; and appropriate risk mitigation mechanisms. Such efforts promise to promote sustainable economic and social development across the continent.